Guardian selects Pibs

The fund has a target yield of 7 to 9 per cent a year, which will be achieved without gearing, and will also have the potential for capital growth. It will invest in a diverse portfolio of Pibs and similar shares.

Pibs are issued to enable the building societies to raise capital. They are listed and traded on the London Stock Exchange, regulated by the FSA but are not protected by the Financial Services Compensation Scheme. They pay interest on a fixed date twice a year and have no fixed redemption date, but the issuer often has the right, not the obligation, to redeem the shares at face value at a fixed point in time.

The lack of a fixed redemption date is why the interest paid by Pibs is higher than corporate bonds.The fund can also invest in perpetual subordinated bonds, the equivalent of Pibs that are issued by demutualised building societies that are now banks,and the new profit participating deferred shares.

PPDs are similar to Pibs but instead of paying a fixed coupon, they may pay up to a fixed percentage of profits as a dividend, depending on whether the society makes a profit. Guardian Managers has identified 25 Pibs, with net yields of 6 per cent to 20 per cent which reflect the perceived financial strength of the societies.

The fund will take advantage of the depressed prices of some Pibs that have occurred because the rating agencies have downgraded the sector and some institutional holders of Pibs have been forced to sell their holdings.

The fund’s investment process is based on a filter system that considersfactors such as the size of the Pibs issue and the credit rating of the issuer to select the best Pibs to provide a balance between income and capital security. The portfolio will be monitored and adjustments will be made in response to news or market moves.

Derivates may also be used to reduce exposure to Pibs when fund manager Paul Gleeson wants to reduce risk. A lack of liquidity has been a problem for investors in this market, so afund which can provide a spread of Pibs and monthly dealing could be welcomed by some high-net-worth clients and IFAs.

The financial crisis has meant that some building societies are cutting or deferring coupons on Pibs but low prices and high yields reflect this and are creating the opportunities that Guardian Managers have identified.

Recommended

France and Germany both reported GDP growth of 0.3% over the second quarter of 2009 this morning, indicating that their economies are moving out of recession. At the same time, total eurozone GDP fell by just 0.1% in the second quarter of 2009, compared with a decline of 2.5% in the previous quarter, according to […]

Newsletter

Latest from Money Marketing

A group of 500 people have launched legal action against Ingenious Media saying they were misled about film investments that were later deemed to be tax avoidance by the government. According to Bloomberg, which cites court documents, employees from companies including Goldman Sachs, Lloyds Banking Group and HSBC are part of the action. British composer Andrew Lloyd-Webber is […]

Embark Services returned to profit in 2017 as it reported an increase in self-invested personal pension clients. Embark Services is a subsidiary of Embark Group that trades under the Hornbuckle and Embark brands. The business reported pre-tax profit for the year ending 31 December 2017 of £136,000 compared with a loss in 2016 of £2.4m. […]

Architas UK has seen inflows drop by just over 70 per cent in the first half of the year. The Axa-owned asset manager reported £152m net inflows for the first six months of 2018, compared with £546m in the first half of 2017. Globally, Architas’s net inflows dropped to €797m (£710.6m) in the first half […]

14th August 20182:45 pm

Comments

There is one comment at the moment, we would love to hear your opinion too.

Leave a comment

Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.